2012 (9) TMI 1153 - AT - Income Tax

2015 (1) TMI 1409 - AT

Issues Involved:
1. Addition of Rs. 42,02,267 as deemed dividend.
2. Disallowance u/s 14A.
3. Computation of book profits u/s 115JA.
4. Deduction u/s 80IA for power generated for captive consumption.
5. Penal interest of Rs. 1,53,902.
6. Provision for doubtful debts of Rs. 38,73,894.

Summary:

1. Addition of Rs. 42,02,267 as Deemed Dividend:
The A.O. added Rs. 42,02,267 as deemed dividend, considering the occupancy rights in YIPL properties as distribution of assets. The CIT (A) upheld this addition. However, the ITAT deleted the addition, referencing a prior decision where it was held that such rights acquired do not constitute a release of assets out of accumulated profits, thus not attracting section 2(22)(a).

2. Disallowance u/s 14A:
The A.O. disallowed Rs. 5,64,112 u/s 14A for expenses related to tax-free income, applying Rule 8D. The CIT (A) upheld this. The ITAT, referencing the Bombay High Court decision in Godrej & Boyce, held Rule 8D inapplicable for AY 2006-07 and deleted the disallowance, noting that the investments were funded by own funds, not borrowals.

3. Computation of Book Profits u/s 115JA:
(a) Disallowance u/s 14A: The ITAT held that since the disallowance u/s 14A was deleted, no addition to net profits for book profits computation was necessary.
(b) Deemed Dividend: The ITAT deleted the addition of Rs. 42,02,267 for computing book profits, following the precedent that such deemed dividend does not form part of book profit.
(c) Provision for Gratuity: The ITAT deleted the addition of Rs. 4,18,170, considering it an ascertained liability as per the Bombay High Court decision in CIT vs. Echjay Forgings Pvt. Ltd.
(d) Provision for Doubtful Debts: The ITAT upheld the addition of Rs. 38,73,894 due to retrospective amendment to Sec. 115JB.

4. Deduction u/s 80IA for Power Generated for Captive Consumption:
The A.O. disallowed the deduction, arguing the power was for captive use and notional profits were not considered. The CIT (A) allowed the deduction at the rate charged by GEB. The ITAT upheld this, referencing decisions in Jindal Steel & Power Ltd. and Tamilnadu Petro Products Ltd., affirming that profits derived from captive consumption are eligible for deduction.

5. Penal Interest of Rs. 1,53,902:
The A.O. disallowed Rs. 1,53,902 as penal interest. The ITAT allowed the interest paid to Central Excise as compensatory but disallowed interest on delayed TDS payment as it is part of income tax, not allowable u/s 40(a)(ii).

6. Provision for Doubtful Debts of Rs. 38,73,894:
The A.O. added the provision for doubtful debts to net profits for computing book profits. The ITAT upheld this addition due to the retrospective amendment to Sec. 115JB.

Conclusion:
The appeals by the assessee for AY 2006-07 and 2007-08 were partly allowed, while the appeals by the revenue for both assessment years were dismissed.

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